If prediction markets are such a powerful tool, then why arent we able to use them to solve [INSERT YOUR FAVORITE WORLD PROBLEM HERE]?

Justin Wolfers is asked the question, but I would have a different answer than his.

The reason prediction markets are not widely used in business is that their many boosters (Robin Hanson, James Surowiecki, Justin Wolfers, etc.) have exaggerated their usefulness. Just because they are objective in their wisdom does not mean that they are very useful.

Objectivity is over-rated. This is a painful lesson for the handful of young startups who swallowed the prediction market myth. Next step: the dead pool.

2 thoughts on “If prediction markets are such a powerful tool, then why arent we able to use them to solve [INSERT YOUR FAVORITE WORLD PROBLEM HERE]?

  1. Paul Hewitt said:

    They’re not so much powerful tools as they are interesting toys.

    As you know, when I started looking into the usefulness of prediction markets, I was decidedly optimistic. Apart from idea pageants (not prediction markets, but rather, a collective intelligence tool), I have not found one useful application of prediction markets. The main problem, once all of the technical details are resolved, is that these markets are particularly poor at predicting anything but short, short term outcomes. In most cases, the time between the accurate prediction and the actual outcome is so short that the prediction cannot be acted upon to achieve some sort of benefit. In other words, they are not useful for decision-making. If you go through my blog, you will find a number of other reasons why prediction markets fail to be useful (and a few ideas as to where they may have appropriate applications). One promising avenue is the estimation of uncertainty surrounding predictions.

    Yet, companies continue to enter the market. Perhaps it is the newness of the concept that attracts talent and financing. I believe, that once the novelty wears off, you will find the deadpool growing much faster than the young startups list.

    I haven’t posted on prediction markets in months, because there is nothing useful or interesting to upon which to comment!

  2. Chris F. Masse said:

    I share your views. Thanks, Paul. Hope you’re well.

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